Doing business in Spain
- How quickly can I set up a business?
- What is the minimum investment needed?
- How can I raise finance?
- What are the legal requirements for setting up my business?
- What structure should I consider?
- What advice can you give me in regards to payroll and taxation requirements?
- Is there anything else that I should know?
How quickly can I set up a business?
What is the minimum investment needed?
Investment depends on the scale of project. However Minimum share capital for the incorporation of an S.L (Sociedad Limitada-Limited Liability Company) is 3.000 Eur and 60.000 Eur for a S.A (Sociedad Anónima -Limited Company)
How can I raise finance?
Investor must contribute the entire capital
What are the legal requirements for setting up my business?
Foreign investors can set up a company in Spain without any restriction.
There exists a compulsory formality to obtain a tax identification number for the foreign investors and non-resident directors.
What structure should I consider?
Establishment (a branch of your overseas business)
• Not a separate legal entity but an extension of the overseas parent company
• No limited liability or ring-fencing of the Spanish operations
• If have a permanent establishment in Spain then profits from this PE are liable to Spanish Corporation tax
• Must file parent company accounts, prepared under Spanish Company Law, at Companies House for public inspection, even if these are not made publicly available overseas
Limited Company/Limited Liability Company (SA/SL):
•Provides limited liability and ring-fencing to Spanish operations
•Gives a perception of a local business, with longevity
•Corporation tax to be paid on company profits
•Companies, must have their annual financial statements audited when two of the below conditions are met for two consecutive years:
Company Turnover, exceed 5,700,000.00 €
Company Balance Sheet total assets, exceed 2,850,000.00 €
Company average number of employees, exceed 50
•Members (partners) have unlimited liability
•Profits are allocated to members who then pay Income Tax on these profits personally
•The tax residence of the member, and where the profits in the LLP are originated will determine in what jurisdiction and how these profits are taxed
What advice can you give me in regards to payroll and taxation requirements?
Personal Income Tax
• Taxpayers considered resident in Spain are liable for Spanish tax on their worldwide income
• Current Personal Income Tax rates in Spain are in between 18,5% and 48%
• Capital Gains Tax Rates are in between 19% and 26% for residents, 19% for UE, Iceland and Norway residents and 24% for the rest of the world residents.
• Employers and employees also have to pay Spanish social security, which is called Seguridad Social. In general terms, current percentage of gross pay check for the employee is 6,35% and 29,9% for the employer.
• Spain has a Reciprocal Agreement with the USA, EU countries and many others whereby when an overseas national of those countries is seconded to Spain for a defined period of time and continues to pay social security in their home country, then the employer and employee are exempt from paying Spanish social security.
Corporate Income Tax
• Current Corporation Tax rates in Spain is: 25%.
• A lower tax rate is applicable for newly-formed companies, which applies to the first two years in which it obtains a taxable profit: The rate is 15%.
• VAT is a “goods and services tax” on supplies made, the standard rate of which is 21%. If a business makes taxable supplies then it MUST be registered for VAT.
• Vat taxable entrepreneurs are obliged to submit quarterly VAT returns if annual turnover is less than € 6,010,121.00 or monthly statements if annual turnover is higher than € 6,010,121.00 (Big companies).
• Additionally, big companies are obliged to provide VAT books corresponding to issued and received invoices, electronically through electronic office of the Spanish Tax Authorities. The deadline for the submission of the information is 4 calendar days since the date of the issuance for invoices issued and 4 calendar days since the date of the registration for invoices received.
The presentation of all tax returns by companies must be obligatorily by electronic means, for which a digital certificate is required.
Is there anything else that I should know?
R+D and TI Tax Credits on CIT
This tax credits may be available at a rate of 25% ( in certain cases 42%) of the R+D expenses and investments incurred in the tax period.
For expenses incurred on Technological Innovation (TI) it is recognized a tax credit of 12%.
Both above mentioned credits are limited to 25% of the gross tax payable (this limit can be raised to 50% is R+D and TI expenditure and investments exceeds 10% of the gross tax payable). However, any excess can be carried forward for use in the following 18 years.
Moreover, it´s allowed to request the refund from the Tax Authorities of the R+D and TI tax credits ( Cash Back) when the tax payer has insufficient tax payable to apply those tax credits. In order to apply mentioned mechanism specific requirements must be met and advice should be obtained.
Attractive Tax Regime for Expatriated Staff
An individual assigned to work and live in Spain may opt to be taxed as a non-resident for the first sis years of the assignment. Under such an agreement, the individual is taxed at a flat rate of 24% on the gross amount of the income. To qualify for the above mentioned benefit, the individual must : 1) not have been a tax resident in Spain for the previous 10 years; 2)work in Spain for a Spanish tax resident company or a PE of a non-resident company; 3)not derive tax exempt income in Spain under the Spanish non-resident income tax law; and 4)not derive more than 600.000 Eur of personal employment income
The Spanish tax legislation means that it is a very attractive place to set up a holding company. Main Tax Benefits of Spanish Holding Company are:
• 95% exemption for dividends and capital gains realized on the disposal of shares (participation of at least 5% and minimum 10% of Corporate Tax applicable to the subsidiary);
• Absence of withholding tax on distribution of non-Spanish source dividends exempted (ETVEs companies)
• Full deductibility of interest payments (fulfilling certain requirements);
• No capital duty on the issue of share capital for entities established in certain provinces, and on share-for-share contributions;
• 95% Exemption of overseas branch income (provided similar tax paid abroad and minimum 10% tax rate); This limit (5% non-exempt) will NOT apply to companies that have net revenue of less than EUR 40 million and that are not part of a business group, for a period limited to three years, when obtained from a subsidiary, whether or not a resident in Spain, constituted after 1st January 2021.
Spanish Territories with Special Tax Benefits:
• Canary Islands have a special tax regime with incentives to investments, tax credits, free trade zones, etc
• Basque Country and Navarra have lower tax rates for CIT and specific tax rules that can be of interest
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